Definition of the negative volume index (NVI)


What is the negative volume index (NVI)?

The Negative Volume Index (NVI) is a technical indicator line that integrates volume and price to graphically show how price movements are affected by days of declining volume.

Key takeaways

  • The negative volume index integrates volume and price to graphically show how price movements are affected by days of declining volume.
  • The negative trend lines of the volume index can potentially be the best trend lines to follow the smart and conventional money movements typically characterized by institutional investors.
  • The NVI can be used in conjunction with the Positive Volume Index (PVI) to see how volume influences price.

Understanding the Negative Volume Index (NVI)

The Negative Volume Index (NVI) can be used in conjunction with the Positive Volume Index (PVI). Both indices were first developed by Paul Dysart in the 1930s and gained popularity in the 1970s after being featured in Norman Fosback’s book “Stock Market Logic.”

Positive and negative volume indices are trend lines that can help an investor track how the price of a security changes with the effects of volume. PVI and NVI trend lines are typically available through advanced technical charting software programs such as MetaStock and EquityFeedWorkstation. Trend lines are usually added below a candlestick pattern similar to displaying volume bar charts.

The negative trend lines of the volume index can potentially be the best trend lines to follow the smart and conventional money movements typically characterized by institutional investors. Volume index positive trend lines are generally more widely associated with the effects of high-volume market trends, which are known to be more heavily influenced by loud, smart money traders.

NVI can be useful after the price drops due to high volume trading. Low volume days can show how institutional money and top investors are trading a security. In general, it is best to track both NVI and PVI together as they generally represent how price is being influenced by volume.

Negative Volume Index (NVI) calculations

The calculation of the NVI depends on how the volume of a single day compares with the volume of operations of the previous day. NVI will only change when the volume has decreased from one day to the next. Therefore, if the current volume is higher, there is no change. If the volume is less than the previous day, the NVI is calculated using the following equation:

NIV

=

PNVI

+

(

TCP


YCP

YCP

×

PNVI

)

where:

PNVI = anterior NVI

TCP = today’s closing price

YCP = yesterday’s closing price

begin {aligned} & text {NVI} = text {PNVI} + left ( frac { text {TCP} – text {YCP}} { text {YCP}} times text {PNVI} right) \ & textbf {where:} \ & text {PNVI = Previous NVI} \ & text {TCP = today’s closing price} \ & text {YCP = yesterday’s closing price } \ final {aligned}

NIV=PNVI+(YCPTCP YCP×PNVI)where:PNVI = anterior NVITCP = today’s closing priceYCP = yesterday’s closing price

If the NVI is higher, it means that the price increases with the decrease in volume. If the NVI is lower, it means that the price is decreasing as fewer investors trade the security.

The calculation of the PVI depends on variables similar to those of the NVI. If the current volume is greater than the previous day’s volume, PVI = Previous PVI + {[(Today’s Closing Price-Yesterday’s Closing Price)/Yesterday’s Closing Price] x Previous PVI}. If the current volume is lower than the previous day’s volume, the PVI does not change. If the PVI is higher, it means that the price is gaining with a large volume. If the PVI is lower, it means that the price is decreasing with high volume. Generally, the PVI will see significant changes when the publication of unforeseen news about a company causes a high volume of operations.

www.investopedia.com

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